Tuesday, May 19, 2009

Schizophrenia is one of the worst of mental illnesses. Self-imposed schizophrenia is the worst. That’s what Dalton McGuinty suffers from.

Talk about going from pillar to post and back again.

On December 16, 2004, the Dalton McGuinty government introduced and passed legislation (Bill 106, which contained the Trust Beneficiaries Liability Act, 2004) that conferred on income trusts the same “limited liability” that exists for the modern day incorporated company. Limited liability is the concept of law that limits the liability of a business to the assets of that business, and not to the assets of the owners. Prior to 2004, owners of income trusts in Ontario had liability that was not limited in the same fashion as with owners of corporations. This created an unlevel playing field and served to make the pension plans wary about making investments in income trusts. Therefore in 2004 of its own volition, the Dalton McGuinty government introduced and passed legislation that allowed pension plans to participate in the income trust marketplace without incurring unnecessary risk.

To no one’s surprise, the pension funds became more active players in the income trust market. That was the predictable outcome. That was the intended purpose.

Fast forward two years and we see the Dalton McGuinty government act in a manner that is totally contradictory to the very act of their government a short two years earlier. Now the argument was being advanced that income trusts cause tax leakage, a concept that only can be advanced if the deferred tax revenue from pension plans and RRSPs is arbitrarily excluded from the analysis. Dalton McGuinty’s Finance Minister Greg Sorbara bought into this fallacious argument, hook line and sinker and dutifully wrote a letter when commanded to do so by Jim Flaherty in the days leading up to the Public Hearings on income trusts that read:

“I would like the Committee to know that, in principle, the Government of Ontario supports the federal government's efforts to ensure fair taxation through changes to the tax treatment of income trusts. We believe that these changes will protect federal and provincial revenue from significant tax leakage. Ontario supports federal transitional rules as they appear to be flexible enough to allow trusts to proceed with reasonable growth, while ensuring there is no unfair advantage over the transition period.”

What a complete crock of nonsense.

Firstly, where is Greg Sorbara’s proof of alleged tax leakage? Is he not aware that tax leakage is a manufactured concept derived by leaving out the deferred taxes paid by pension funds? Is he not aware that this is fundamentally wrong? Is he not aware that his actions and the actions of the Dalton McGuinty government in 2004 to extend limited liability to income trusts served to increase the extent to which income trusts are now owned by pension funds? Therefore he is responsible for the outcome that he is now attempting to solve with this draconian 31.5% income trust tax, that saw the pension funds in Canada lose over $1 billion and all income trusts investors lose $35 billion, 40% of whom reside in Ontario.

As for the argument that “there is no unfair advantage over the transition period”, this is deceitful and/or incompetent in the extreme. How about the fact that pension funds, like Ontario Teachers’ and OMERs can own income trusts privately, that were previously public, and not pay the 31.5% tax. Is that not a gross unfairness? Is that not obviously going to lead to predatory purchases by the very pension funds that you are the plan sponsor of, like OMERs making bids for income trusts such as Golf Town and Teranet and expoiting this grossly unfair “tax arbitrage” that was negotiated behind the scenes to advantage government sponsored pension plans at the expense of the average Ontarian, who is footing the bill for your salary and these pension plans, and is now being significantly disadvantaged by this income trust double tax on their RRSPs and being subjected to a grossly unfairly distorted playing field?

For the next act of Dalton’s schizophrenia, one need only observe that this income trust tax never did address tax leakage, since there was none to begin with, but rather it created tax leakage from the $100 billion of trust policy realted takeovers of the lat two years that have caused over $1 billion in annual tax revenue losses, a number that will soon climb to $7.5 billion a year, unless it is stopped.

More of Dalton’s schizophrenia comes upon realizing that the income trust tax was sole on the basis that “tax leakage”was bad because it meant that the tax burden was being “shifted” from the corporation onto the shoulders of the individual, as per these two measures (of only five) quote from the Ways and Means motion:

“ensuring that taxes are not unfairly shifted onto the shoulders of Canadian taxpayers, especially Canadian families”“strengthening Canada's social security system for pensioners and seniors”

If these were virtues for the income trust tax, then how the hell does Dalton justify his HST tax, which is simply a blatant exercise of shifting $2 billion in corporate tax burden onto the shoulders of Ontario taxpayers and does absolutely nothing (like he income trust tax) in terms of strengthening the social security system for Ontarians?

Meanwhile we have the GM pensioners calling upon the McGuinty government to bail out their pensions as recently as Friday of last week, and Dalton’s argument is that these underfunded pensions are the consequence of GM’s actions and not the actions of the Ontario government and that the best way to preserve the viability of GM pensioners is for the Ontario government to ensure the viability of GM...with a $4 billion bailout.

Agins this is Dalton’s schizophrenia coming to the fore insofar as the 40% on income trust investors in Ontario are concerned. We are talking here about a mere 1 million Ontario voters, who have had their life savings destroyed as a sole result of Government action. The unjustified and unproven argument advanced by the incompetent and deceitful Jim Flaherty was enjoined by Greg Sorbara and the Dalton McGuinty government that was the SOLE cause behind why 1 million Ontario residents lost $14 billion of their life savings.....caused by Dalton McGuinty’s schizophrenia that lured them into the income trust market with the limited liability measures of 2004, only to be slaughtered a short two years later based on the fraudulent argument of tax leakage that was endorsed by the Dalton McGuinty government.

This is what you get Dalton, when you take advice from Ed Clark of the TD Bank, rather than let the facts speak for themselves and consulting with voters and the broader more well informed public rather than self interested parties who stand to commercially benefit from your schizoid policy moves like killing income trusts and introducing HST. By the waym how much money lands in TD’s pocket on an annual basis from the HST tax? Where was TD in the underwriting league tables for income trusts over the last ten years? Top ranked or bottom ranked?

EVENTS

Income Trust Halloween VigilThanks to all who participated in both the Ottawa and Calgary vigils to mark the anniversary of the announcement.

WE"D LIKE SOME ANSWERS

As you well know, the ‘income trust thing’ has grown beyond the
question of whether fair taxes are paid on income from trusts. It’s
become a giant dirty snowball, and as it rolls forward it accumulates
more and more bulk. There are so many unanswered questions. Let's list a few and invite our "Accountable" government and our free press to provide some much-needed answers.

It is said “Trusts are inefficient use of capital. Why?” Two
related questions are ‘Whose money is it, anyway?’, and ‘Do Canadian
investors have a free and efficient market?’

How can information that is already in the public domain at SEDAR
make for a state secret? How could such information be used to harm
the Canadian national interest? And who would cause the harm?

Why won’t the Canadian media investigate the falsehoods and
misrepresentations told by the Minister of Finance to a committee of
Parliament? Was the Minister in contempt of Parliament?

Why won’t the Canadian media report (a) government tax revenues
gained from BCE in 2006 when BCE was a corporation to (b) government
tax revenues that would be gained in 2007 from BCE, if BCE had been
allowed to proceed to a trust, and (c) government tax revenues that
will be gained in 2007 from BCE, when BCE ownership has been carved
up as 45% foreign ownership and 55% large Canadian pension fund
ownership?